Clariant, a world leader in specialty chemicals, today announced full-year 2011 sales of CHF 7.370 billion, compared to CHF 7.120 billion in 2010. Sales grew 16% in local currencies and 4% in Swiss francs. The lower growth in Swiss francs was a result of the significant appreciation of the Swiss franc against most major currencies on a year-on-year basis.
Due to the acquisition of Süd-Chemie and the strength of the Business Unit Catalysis & Energy in the third and fourth quarters, sales were higher in the second half-year than in the first six months, despite a significant slowdown in some businesses towards year-end. In addition to Catalysis & Energy, which had another record-year, the non-cyclical Business Units Additives, Functional Materials, Industrial & Consumer Specialties, and Oil & Mining Services contributed significantly to the sales increase in 2011. Those non-cyclical businesses account for more than 50% of Group sales. In contrast, the cyclical Business Units Pigments and Masterbatches suffered from a slow-down in industrial production that started at the beginning of the second half-year and resulted in destocking activities along the value chain. All regions grew at a double-digit rate in local currencies.
The double-digit increase in sales was driven by year-on-year sales price increases of 7% and by acquisitions, which contributed 14% to sales growth. Volumes were 5% lower, reflecting the lower demand in the second half-year and the deliberate loss of sales that did not meet Clariant's profitability targets.
The gross margin decreased to 26.7% from 27.9% in full-year 2010. Lower volumes, negative currency effects, and a one-time charge were the main drivers of the slightly lower margin, and were only partly offset by successful sales price management. Excluding the one-time charge of CHF 54 million as a result of the sale of Süd-Chemie inventories revalued to fair value less costs to sell, the gross margin was 27.4%. Despite the global economic slow-down, commodity prices remained at high levels. Raw material costs increased 14% compared to the previous year. Sales price increases of 7% fully compensated the higher raw material costs, leading to a slightly positive contribution to the gross margin.
EBITDA before exceptional items increased to CHF 975 million (margin 13.2%) from CHF 901 million (margin 12.7%) a year ago. A strong fourth quarter in Catalysis & Energy and a diminishing negative impact from currencies toward the end of the year pushed the margin higher. The operating profit (EBIT) before exceptional items rose to CHF 717 million (margin 9.7%) compared to CHF 696 million (margin 9.8%) in 2010. Lower restructuring costs led to an improvement in net income to CHF 251 million from CHF 191 million despite higher tax expenses.
The extreme volatility in the foreign exchange markets weighed on Clariant's profitability in 2011. Both EBITDA and EBIT before exceptional items were negatively impacted by approx. CHF 190 million (EBITDA), corresponding to a 0.9 percentage-point margin, respectively approx. CHF 170 million (EBIT), corresponding to a 1.0 percentage-point margin.
Cash flow from operations of CHF 206 million was below last year's CHF 642 million, which to a large extent had been obtained from the reduction in net working capital, but significantly above the CHF 21 million reported at the end of the third quarter 2011. As a percentage of annualized sales, net working capital reached 19.6%, below the targeted
20% of sales.
The acquisition of Süd-Chemie led to an increase in net debt to CHF 1.740 billion compared to CHF 126 million at year-end 2010. Net debt has been reduced from 1.812 billion at the end of the third quarter, leading to a gearing (net debt divided by equity) of 58% at year-end 2011. The cash position was strong with CHF 1.199 billion in cash and cash equivalents on 31 December 2011. The extension of the maturity profile has been successfully addressed with the issuance of bonds totaling CHF 300 million in the Swiss francs market since May 2011 and another EUR 365 million in certificates of indebtedness with terms of three years and four and a half years. After the reporting period, another EUR 500 million with maturity in 2017 have been raised in the Eurobond market.
Clariant Q4 2011 Performance
Clariant reported 21% sales growth in local currencies in the fourth quarter. In Swiss francs, sales were 13% higher, at CHF 1.918 billion compared to CHF 1.700 billion a year ago. Sales prices increased 9% year-on-year, while volumes were 12% lower and raw material costs rose 10%. Sequentially, sales prices rose slightly while raw material costs fell 1%. Catalysis & Energy had an excellent quarter, leading the good performance of the non-cyclical businesses. Masterbatches and Pigments were negatively affected by the softening demand from the plastics industry and the related destocking activities. The structurally challenged mature businesses Textile Chemicals, Leather Services, and Paper Specialties continued to suffer from the poor business conditions in their respective end-markets. Organic sales growth in North and Latin America was double-digit, while sales in Asia/Pacific decreased. Europe suffered from the debt crisis, with a double-digit decrease in sales. Including acquisitions, all regions showed double-digit sales growth.
The gross margin was lower year-on-year, at 23.8% compared to 26.0% in the previous-year period. This was exclusively due to a one-time charge of CHF 43 million as a result of the sale of Süd-Chemie inventories revalued to fair value less costs to sell. Excluding this charge, the gross margin reached the level of the previous-year quarter. The EBITDA margin before exceptional items climbed to 12.6% from 10.0% in the fourth quarter of 2010, driven by lower costs and helped by one-time effects, contributing 0.8 percentage points to the EBITDA margin. The operating income (EBIT) before exceptional items increased to CHF 165 million (margin 8.6%) from CHF 120 million (margin 7.1%).
Operating cash flow picked-up significantly compared to the first nine months (CHF 21 million) and rose to CHF 185 million, but was below the exceptionally high CHF 277 million of the previous year, which had been the result of the reduction of net working capital.
Süd-Chemie meets high expectations, smooth integration ongoing
The two new Süd-Chemie Business Units - Catalysis & Energy and Functional Materials - have performed above target in the first eight months of consolidation. Catalysis & Energy reported an EBITDA before exceptionals of CHF 107 million (margin 21.8%), and Functional Materials CHF 59 million (margin 12.9%). Catalysis & Energy showed the expected strong development in the third and especially the fourth quarter.
After the extraordinary General Meeting held by Süd-Chemie AG on 22 November 2011, the transfer of all shares held by minority shareholders to Clariant was approved. The squeeze-out became effective 1 December 2011, with Süd-Chemie now being 100% owned by Clariant and organized according to the Clariant operating model.
The integration is progressing as planned with all project teams fully operational. Based on current insights and integration experience, the anticipated EUR 75-95 million EBITDA improvements by year-end 2013 are confirmed.
Outlook 2012
Clariant will continue to systematically implement the next steps in its transformation process with a focus on the integration of Süd-Chemie, on completing the restructuring measures initiated in 2009-2010, and on portfolio management. In this context, Clariant is evaluating strategic options for the Business Units Textile Chemicals, Paper Specialties, and Emulsions, Detergents & Intermediates, with the goal of realization in the mid- to long-term.
An accurate forecast for 2012 is difficult given the current level of economic uncertainty. Raw material costs are expected to rise in the mid-single-digit range while exchange rates should remain stable compared to the beginning of the year. In its base case scenario, Clariant expects that after a weak start to 2012, the global economy will progressively strengthen in the course of the year. Therefore, results for the first half-year are expected to be lower compared to the high base of the first half of 2011, with an improvement in the second half-year 2012. For full-year 2012, Clariant expects further sales growth in local currencies and sustained profitability.
In the last three years, the restructuring program as well as portfolio management measures have brought Clariant's operating performance to a sustainably higher level. The Board of Directors will therefore propose to the AGM a payout of CHF 0.30 per share through a reduction of the nominal value of the shares to CHF 3.70 from CHF 4.00.